Matter of City of New York (New Creek Bluebelt, Phase 4 Paolella)

[*1] Matter of City of New York (New Creek Bluebelt, Phase 4 Paolella) 2012 NY Slip Op 50851(U) Decided on May 7, 2012 Supreme Court, Richmond County Saitta, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 7, 2012
Supreme Court, Richmond County

In the Matter of the City of New York Relative to Acquiring Title in Fee Simple absolute in certain real Property, where not heretofore acquired, for New Creek Bluebelt, Phase 4 Within an area generally bounded by Hylan Boulevard on the West, Slater Boulevard on the North, Olympia Boulevard on the East, and Hunter Avenue on the South, in the Borough of Staten Island, City and State of New York. Lawrence N. Paolella and Liana Paolella (Fee Claimants for Damage Parcel 154, 156-160) (Block 3790 Lots 31,33,35,37, 38,and 42) Claimants, The City of New York Condemnor.



4018/07



Plaintiff Attorney - (City)

Michael A. Cardozo

100 Church Street

New York, New York 10007-2601

(212) 788-0716

Fred Kolikoff, Esq.

Defendants Attorney -

Goldstein, Rikon & Rikon, P.C.

80 Pine Street, 32nd Floor

New York, New York 10005

(212) 422-4000

Jonathan Houghton, Esq.

Wayne P. Saitta, J.

At issue in this condemnation proceeding is the just compensation to be awarded to claimants LAWRENCE N. PAOLELLA and LIANA PAOLELLA, for the taking of the subject property, located on Staten Island (Block 3790 Lots 31, 33, 35, 37, [*2]38,and 42). The condemnor THE CITY OF NEW YORK, took title on June 11, 2007 (the vesting date). The court viewed the property on November 28, 2011, and a non jury trial was held on January 9-11, 2012.

FACTS

The City acquired the subject property for use as part of the CITY's New Creek Bluebelt Phase 4 project. The property consists of approximately 19,500 square feet and is bounded by on the south by Jefferson Avenue, on the east by Freeborn Street on the west by Grimsby Street and on the north by a mapped but unbuilt street. The entire site consists of wetlands. The property is in designated flood zone AE 11. Any habitable floor area would have to be built at least two feet above the Base Flood Elevation.

The subject property was regulated as wetlands on the vesting date. Both parties agree that because of the wetlands regulations, the owners of the property would not be able to obtain a permit to develop it. Its highest and best use as regulated is vacant.

It was also stipulated that the Claimants purchased the property prior to the enactment of the wetland regulations and were owners of the subject property on the vesting date.

ANALYSIS

The preliminary issue to determine is whether the restrictions on this property imposed by the State's Freshwater Wetlands regulations constituted a regulatory taking.

In a condemnation proceeding, a property restricted by wetlands regulations is valued as regulated by the wetland regulations unless the claimant can demonstrate that there is a reasonable probability that the wetlands regulations would be held to be a regulatory taking. If so, Claimants are entitled to an increment above the regulated value representing an additional amount a reasonable buyer would pay for the probability of a successful judicial determination that the regulations were confiscatory. Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS2d 983 (2nd Dept 1984); Berwick v State of New York, 107 AD2d 79, 486 NYS2d 260, (2nd Dept. 1985); Matter of City of New York, Staten Island Bluebelt Phase 2 (Fink) Index 4012/04 (Su. Ct. Kings 2007). It is the Claimants' burden to establish that there is a reasonable probability that the regulations would be found to constitute a taking. de St. Aubin v Flacke, 68 NY2d 66 (1986); Adrian v Town of Yorktown, 83 AD3d 746, 920 NYS2d 411, (2nd Dept 2011).

To show a reasonable probability that a constitutional challenge to the wetland regulations would succeed, a claimant must demonstrate that the regulations render their property unsuitable for any economic or private use for which it is adapted, and thus destroys its economic value, or all but a bare residue of the value. Spears v Bearle 48 NY2d 254 (1979), de St. Aubin v Flacke, 68 NY2d 66 (1986); Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS 983 (2nd Dept 1984).

In the present case, the wetlands regulations preclude any development of the property or any use other than leaving it vacant. The question remains however, whether this has destroyed all but a bare residue of the value of the property.

That fact that the regulations may prohibit any development or economic use of [*3]a property does not necessarily mean that the regulations have destroyed all or all but a residue of the property's economic value.

As the City points out, this Court held in the case of Matter of City of New York (Grantwood Retention Basin), 33 Misc 3d 586, 292 NYS2d 478 Slip Op 21319 (Su Ct Richmond Co. 2011), that the value of a property as a speculative investment is properly considered in valuing a property in a condemnation proceeding. Purchases made by speculators are valid comparable sales for use in a comparable sales approach. Florida Rock Industries Inc., v US, 18 F3d 1560, (Ct of App, Fed Cir, 1994). This is so because investors regularly buy properties which have no current profitable use on the expectation that the restrictions may be lifted or modified, or simply on the expectation that they may be able sell the property at a profit.

In this case, both sides presented comparable sales of properties that were similarly restricted so as to prohibit any development. These comparable sales demonstrate that in the local Staten Island market investors are willing to purchase properties that can not currently be developed because of wetlands regulations. These comparable sales provide objective dollars and cents evidence that the property has more than a nominal value despite the fact that it can not be put to any productive economic use.

However, the fact that the property has more than nominal value as a speculative investment does not end the inquiry. The question remains whether the speculative value of the property as regulated is more than a bare residue of the property's value as unregulated.

While property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking. Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S. Ct. 158, 67 L. Ed. 322 (1922). Since Pennsylvania Coal, the United States Supreme Court has developed an analytical framework for determining when a regulation goes so far as to constitute a taking.

A regulation constitutes a taking per se, only in the extraordinary circumstance where no productive or economically beneficial use of land is permitted. Lucas v South Car. Coastal Council, 505 U.S. at 1014, 112 S. Ct. 2886 (1992) ; Tahoe—Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 122 S. Ct. 1465, (2002).

A property owner must suffer a literal total loss in value to trigger liability on the part of the government for a categorical taking. See Lucas, 505 U.S. at 1019 n. 8, 112 S. Ct. 2886; see also Tahoe Sierra, 535 U.S. at 330, 122 S. Ct. 1465.

In this case, the wetlands regulations do not constitute a categorical taking under a Lucas analysis, as the value of Claimants' property was not totally destroyed.

However, even if the regulations do not eliminate all of the economic value of a property, they may constitute a taking under the doctrine set forth by the United States Supreme Court in Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646 (1978). This analysis is an "essentially ad hoc, factual inquiry," in which the court considers: (1) "[t]he economic impact of the regulation on the claimant," (2) "the extent to which the regulation has interfered with distinct investment-backed expectations," and (3) "the character of the governmental action."Id at, 124; see also Palazzolo, 533 U.S. 617, 121 S. Ct. 2448. [*4]

While the factors annunciated in Penn Central provide "important guideposts," the determination of whether a regulation that does not destroy the total value of a property constitutes a taking, requires careful examination and weighing of all the relevant circumstances.

A court must make an hoc determination whether a regulation constitutes a taking based upon the particular circumstances of the case. Tahoe—Sierra, 535 U.S. at 322, 122 S. Ct. 1478 Yee v. City of Escondido, 503 U.S. 519, 523, 112 S. Ct. 1522, (1992). The determination depends upon the magnitude of the regulation's economic impact and the degree to which it interferes with legitimate property interests. Lingle v Chevron USA Inc,. 544 US 528, 125 S. Ct. 2074 (2005)

A mere diminution of value is not sufficient to constitute a taking. Penn Central 438 U.S. 104, 98 S. Ct. 2646 (1978). The court must bear in mind that "[g]overnment could hardly go on if to some extent values incident to property could not be diminished without paying for every such change in the general law." Lingle at 538 (quoting Pennsylvania Coal Co., v Mahon, 260 US 393, 413, 43 S. Ct. 158 (1922)).

The Court will consider each of the Penn Central factors in reverse order.

The third factor discussed in Penn Central is the character of the governmental action. Since the Supreme Court's decision in Lingle, whether the regulation substantially advances a valid governmental interest is no longer a part of Penn Central analysis. The inquiry into the character of the regulation looks to whether it amounts to a physical invasion or instead merely affects property interests to promote the common good. Lingle at 539, 2082.

Also considered as part of the character of the regulation is the concept of "reciprocity of advantage" that is, whether the regulation is part of a more general regulatory scheme that provides some benefit to the restricted property owner, such as in the case of a comprehensive zoning plan. While the benefits to the property owner do not have to equal the benefits gained by other property owners, where a regulation singles out a particular property with a disproportionate burden, there is no reciprocity of advantage, which is indicative of a taking. Penn Central at 438 US at 133-135.

The wetlands regulations herein are not part of a comprehensive plan that affects all property owners. While the regulations do provide a general public benefit, their burden falls on a limited group of property owners: the owners of wetlands.

Further, the burden falls disproportionately on owners of properties such as Claimants' which are entirely wetlands, as opposed to wetland adjacent properties. Significantly, in terms of evaluating the character of the regulations, the regulations as they affect the property in this case prohibit all development. They do not allow the Claimants any alternative uses that would provide a reasonable economic return.

The second Penn Central factor is the reasonable investment backed expectations of the owner. However, other than establishing that the Claimants purchased the property before the wetlands regulations were enacted, Claimants put in no evidence as to what expectations they had in purchasing the property. Thus. Claimants have failed to show that the regulations destroyed any reasonable investment based expectations.

The first Penn Central factor is the economic impact of the regulations. In [*5]evaluating the economic impact of a regulation in a takings case, the court must compare the value that has been taken from the property with the value that remains in the property." Keystone Bituminous v DeBenedictis, 480 U.S. 470 at 497, 107 S. Ct. 1232 (1978).

A reduction in the value of the regulated property is insufficient, standing alone, to establish a compensable regulatory taking. Penn Central, supra at 131, Indeed, the Supreme Court in Penn Central cited two of its previous opinions in which the Court refused to hold that there was a regulatory taking; Euclid v. Ambler Realty Co., 272 U.S. 365, 47 S. Ct. 114, 71 L. Ed. 303 (1926), in which a zoning regulation resulted in a seventy-five percent diminution in value, and Hadacheck v. Sebastian, 239 U.S. 394, 36 S. Ct. 143 (1915), in which the regulation resulted in an 87.5 percent diminution.

However, the Supreme Court has consistently declined to set forth a mathematical formula or specific percentage of loss of value that would constitute a taking under Penn Central. See Kaiser Aetna v. United States, 444 U.S. 164, 174 175, 100 S. Ct. 383, 389—390 (1979). "[T]here simply is no bright line dividing compensable from noncompensable exercises of the Government's power when a regulatory imposition causes a partial loss to the property owner. What is necessary is a classic exercise of judicial balancing of competing values." Florida Rock industries Inc., v US, 18 F3d 1560 at1570.

The United States Court of Federal Claims in Brace v US citing Euclid and Hadacheck stated,

"Indeed while courts have struggled with the dichotomy between compensable partial takings' and noncompensable mere diminutions,' searching for a threshold beyond which diminution would be indicative of a taking, several Supreme Court decisions suggest that diminutions in value approaching 85 to 90 percent do not necessarily dictate the existence of a taking. Brace v United States, 72 Fed Cl 337, 357 (2006).

However, in Brace the diminution in value of the property before the court was only 14%.

The Appellate Division Second Department held in Chase Manhattan Bank v State of New York, 103 AD2d 211, 479 NYS2d 983(2nd Dept 1984), that where wetland regulations deprived the claimant of all financially rewarding uses of the property and reduced the property's value by 86%, there is a reasonable probability that the regulations could be successfully challenged as a regulatory taking.

In Friedenburg v State of New York, 3 AD3d 86, 767 NYS2d 451 (2nd Dept 2003), the Second Department held that while a diminution of 95% of the value of a property would not qualify as a per se regulatory taking under Lucas, a 92.5% -95% loss of value constituted a regulatory taking under a Penn Central analysis.

Recently, in Adrian v Town of Yorktown, 83 AD3d 746, 920 NYS2d 411, (2nd Dept 2011), the Second Department found no regulatory taking where regulations reduced the value of a 15 acre parcel by 64%. In that case claimant sold the parcel for $3,600,000 and contended that it was worth $10,000,000 as unregulated.

In Putnam County Nat. Bank v City of New York , 37 AD3d 575, 829 NYS2d 661 [*6](2nd Dept 2007), the Second Department found that watershed regulations which reduced the value of a parcel by 80% did not constitute a regulatory taking. In that case the plaintiff was denied a permit to develop a 36 lot subdivision because a sewer permit for a development that size could not be built under the watershed regulations. Subsequently the plaintiff was given approval for an alternate plan to develop a 17 lot subdivision. After obtaining approval, the plaintiff sold the property for $1.4 million dollars which it claimed was 20% of what the property would have been worth had they been allowed to develop the 36 lot subdivision. The Court held that plaintiff realized a "reasonable return" upon its sale of the property and the economic impact of the regulations was insufficient to constitute a regulatory taking. Id at 577.In the present case, the City has put the value of the property as regulated at $185,000 and its value as unregulated (after a deduction for extraordinary costs) at $1,018,000. Claimants put the value of the property as regulated at $220,000 and its unregulated value (after a deduction for extraordinary costs) at $1,378,000.

For reasons set forth more fully below, the court rejects the values offered by Claimants as not credible, and finds the City's regulated and unregulated values, to accurately reflect the property's value.

The City's appraiser's unregulated market value of $1,018,000 compared to the regulated market value of $185,000 evidences that the regulations reduced the value of the property by 82%, leaving a residual value of 18.%.

The 82% reduction in value, must be considered together with the other Penn Central factors, in this case, the character of the regulations, which prohibit any development or economic use of the property. This case is similar to the situation in Chase Manhattan Bank v State of New York, where the court held that the fact that regulations precluded any development of the property and reduced the value by 86% established a reasonable probability that the regulations could be successfully challenged. This case differs from the situation in Putnam County Nat. Bank v City of New York, where the regulations reduced the value of the property by 80% but still allowed for significant development of the property.

Here, while a 82 % reduction in value alone might not be sufficient to establish a taking pursuant to Penn Central, a 82% reduction in value, when taken together with the character of the regulations, which require the property to remain vacant, and do not allow any productive use of the property, evidences a reasonable probability that a challenge to the wetland regulations as applied to this property, as a regulatory taking, would be successful.

As there is a reasonable probability of a successful challenge, the court must consider what increment to the regulated value of $185,000 a willing buyer would have paid for the property on the date of vesting on the expectation that they could successfully challenge the wetland regulations.

The first step in that analysis is to determine the value of the property as unregulated. As stated above, the court found Claimants' appraised values not to be credible and the City's unregulated values to be an accurate reflection of the market value.

Claimants' estimate of the property is not reliable because their development plan for the property is not realistic. Their plan calls for putting eight buildings on the site [*7]and accomplishes this by proposing six buildings that are only 10.61 feet wide. While a 10½ foot wide house may comply with the zoning regulations, it is not in line with the realities of the market. The testimony of Claimants' appraiser Henry Salmon that such narrow homes are saleable as starter homes was not credible. His explanation that many homes that narrow were originally built as bungalows in the area, is not convincing. The fact that people might convert a narrow bungalow, built decades ago, to full time use, is not evidence that there was a market in 2007 for newly constructed homes that are only 10½ feet wide.

During his testimony, Todd Ettlinger, Claimants' consulting engineer, attempted to testify that he could have put eight 12 foot wide houses on the property. However he based that opinion on two houses he had recently built on two 20 foot lots. Those houses were 12 feet wide with the required 8 foot side yard. The plan included in the appraisal had 18.61 foot wide lots which would not allow for a 12 foot wide house and an 8 foot side yard.

More importantly, Ettlinger's attempt to amend his development study from the stand, and testify about a development study which was not included in any of the appraisals, was precluded and is not part of the record.

Additionally, Claimants' appraiser calculated the unregulated value of the property based on building lots rather than square feet. Based on the adjusted comparable sales he used, Salmon valued the property as worth $180,000 per building lot. He multiplied that value by eight buildings lots resulting in a value of the property of $1,440,000 before construction costs. However, if one calculates the value based on six 15 foot wide buildings, the result is $1,080,000

The HDR plan submitted by the City which includes six buildings that are 15 feet wide, represents the maximum development the market would support and represents the highest and best use of the land.

Additionally, Claimants' estimate of $62,000 in extraordinary costs greatly underestimates the extraordinary costs that would be necessary to develop the site. Ettlinger admitted in his testimony that he should have included the costs for site preparation, a longer extension for sanitary sewers, internal sanitary sewers, a water main, storm drainage, and street pavement.

While the Claimants have raised some questions as to the basis for some of individual items of HDR estimated extraordinary costs, and certain of the soft costs appear to have been inflated, these discrepancies do not significantly change the total extraordinary costs estimated by the City.

Interestingly, after deducting Claimants' estimated extraordinary costs of $62,000, from the value of the property with six buildings, at Claimants' estimate of $180,000 per building lot, the result is $1,018,000. This exactly matches the City's estimate of the value of the property after extraordinary costs. Thus both the City's appraisal and the Claimants' comparable sales, if one assumes a reasonable development of six buildings on the site, result in an unregulated value of the property after extraordinary costs of $1,018,000.

This unregulated value of $1,018,000 is the basis from which the increment, which is to be added to the regulated value of $185,000, must be calculated. The parties disagree as to what increment should be added to the regulated value of the [*8]property.

The increment is determined by the realities of the marketplace, which are that a knowledgeable buyer would not pay the full unregulated value of the property, but would adjust his purchase price to offset the cost in time and money of applying for a permit and challenging its denial in court as confiscatory. A buyer would pay only the value of the property as so restricted, plus some increment representing its enhanced value at such future time if and when he is successful in nullifying the wetlands restrictions in court. Berwick v State of New York, 107 AD2d 79 at 84 (2nd Dept 1985).

The Claimants contend that the increment to be added to the regulated value should be 75% of the unregulated value, citing , Berwick v State of New York, 159 AD2d 544, 552 NYS2d 409 (2nd Dept 1990).

Robert Sterling, the City's appraiser, on the other hand, begins by deducting the regulated value of the property of $185,000 from the unregulated value of $1,018,000, leaving $833,000. He then calculates the increment by deducting from the $833,000 the estimated costs of obtaining a judicial determination of a taking, estimated at $194,525, leaving $638,475. He then reduces this $638,475 by 46% to account for the time it would take to get a judicial determination. This results in an increment $343,000 which is added to the regulated value for a final value for condemnation purposes of $528,000.

There are several problems with the City's calculation of the increment. First, the appraiser calculated the legal fees based on based on a percentage of the difference between the regulated values and unregulated values of the property. There was no evidence presented to suggest that legal fees are calculated from such a percentage. The City's appraiser, who is not a lawyer, based his estimate on conversations with unnamed lawyers.

Second, his estimate that it would take 5.5 years to obtain a judicial determination was based on a single case, Friedenburg v State of New York, supra, which was supplied to him by attorneys for the City. Aside from the inadequacy of a sample size of one case, it appears that Freidenburg, was of atypical length.

Freidenburg involved a situation where an amended Article 78 petition was filed to challenge a denial of a permit after the original proceeding sought to have the denial of a permit under the regulations be deemed a taking. The Supreme Court dealt with the amended petition and dismissed the original claim of a regulatory taking. The Appellate Division reversed and remanded for a decision of the regulatory taking claim. The Supreme Court on remand found it was a taking and DEC appealed again. The lower court finding of a taking was affirmed. A proceeding with a remand and two appeals is not a typical case. It is an inappropriate comparison to this case, where it is conceded that because the property is comprised entirely of wetlands, no permit would be granted.

Here, there is no disagreement that because the property is entirely wetlands no permit would be issued for any development. Therefore it would be unnecessary for a buyer to first go through the process of applying for a permit and administratively challenging the denial.

The only issues to be litigated would be, first, how much residual value was left [*9]in the property as a speculative investment; and second, whether that residual value was so low as to constitute a taking when considered together with the character of the regulations.

This is a far simpler analysis than in Freidenburg, which involved an inquiry into whether any of the allowable uses under the regulations was feasible and whether the denial of a permit was arbitrary.

Given the limited issues in this case, 5.5 years would be a excessively long time frame for a buyer to obtain a determination in a declaratory judgment action. The importance of the length of time that it is assumed it would take to obtain a final determination, is magnified by the manner in which the discount for time was calculated. The City's appraiser deducted an opportunity costs of 5% over 5.5 years as well as a discount rate of 12% over 5.5 years to determine the present value of the sites' future development value.

As with any calculation of present value, the longer into the future one posits the future value, the smaller the present value. If the time to obtain a judicial determination is, for example, 3 years rather than 5.5, the discount would be greatly reduced. The discount for estimated opportunity costs would be reduced from $50,875 to $27,000.

More significantly, based on a 3 year period, the discount for time used by the City's appraiser would be reduced. At 5.5 years and 12% compound interest, the increment of $638,475 was reduced to 54% of its value or $343,000. If 3 years is used, then the $638,475 is only reduced to 71%, or $453,317, a difference of $110,000.

Further, the inclusion of an additional 4% to account for risk, in the discount rate for time, was not supported by the evidence. If that 4% were taken out of the discount rate, the discount rate would be reduced by a third.

However, the main problem with the manner in which Sterling calculated the increment is that he testified that he does not believe it accurately reflects how a knowledgeable buyer would value a restricted property on the expectation of a judicial determination that the wetlands regulations constituted a taking.

On cross examination Sterling stated that he has no market data to support the theory that a buyer would pay an increment for a restricted property and file a permit or start a regulatory taking action. He further stated, "As I just told his honor I don't think that any buyer would do that at all. I don't think any buyer would buy the subject property and go through the process as indicated by the increment."

Since the City's appraiser does not believe his estimated increment reflects the reality of the marketplace, it must be rejected.

The Claimants propose an increment of 75% based on the Appellate Division decision in Berwick v State of New York, 159 AD2d 544, 552 NYS2d 409 (2nd Dept 1990). In Berwick the Court applied an increment of 75% of the unrestricted value of three properties after first deducting the value of the properties as restricted. This 75% increment was then added to the restricted value of the properties.

The decision involved appeals of three distinct proceedings which involved three different properties. The Appellate Division held that the claimant in each proceeding was entitled to a 75% increment in addition to the regulated value of their property.

The Court dealt with differences between the three properties not by varying the percent of the increment, but by making different adjustments to the comparable sales [*10]used for each property to account for development difficulties. The Court adjusted the unregulated value of the Berwick property downward by 37% and then added an increment of 75% of the adjusted unregulated value, to the regulated value of the property.

As to the second property (the Pasacale property), the owner's appraiser adjusted the comparable sales for time, size and then applied a further downward adjustment of 35% to account for "developability". The Appellate Division, rejected this approach on the grounds it inflated the values of the comparable sales used to calculate the unregulated value of the property.

The Court instead calculated the increment for the Pascale property in the same manner it did so for the Berwick property. It made a downward adjustment to the Pasacale property of 32.5% of the unregulated value to account for what it termed developability problems. It then added an increment, of 75% of that adjusted unregulated value, to the regulated value of the property.

The Court treated the third property (the Dixon property) in a similar manner. It applied a downward adjustment to the unregulated value, derived from comparable sales, to account for developability issues it found to be similar to those affecting the Berwick and Pascale properties. It then added an increment of 75% of the adjusted unregulated value to the value of the property as regulated.

While there were differences in the three properties, the court applied an increment of 75% to all three and adjusted for the differences by be making adjustments to the comparable sales that were used to calculate the unregulated value of each property.

All three of the properties were almost entirely wetlands. The Berwick property was 92% wetlands, the Pascale property was 93% wetlands and the Dixon property was 97% wetlands. The Appellate Division imposed downward adjustment for what it termed developability issues, of 32%, 32.5%, and 34% respectively.

While it is not explicitly stated, it is apparent from the context of the decision that the downward adjustment for developability issues was to account for the extra time, risks and construction costs associated with developing wetlands property.

While the 75% increment set forth in Berwick may not be applicable to all wetlands properties, it is the appropriate increment to apply in this case.

However, in this case a downward adjustment to the unregulated value of the property derived from the City's comparable sales is not necessary, because those values have already been adjusted to account for developability issues.

Specifically, the City's appraiser adjusted the comparable sales downward by 10% to account for motivation. That is an extra profit an investor would demand on top of the extraordinary costs to account for the extraordinary efforts it would require to develop the property. This 10% adjustment lowered the comparable values by approximately $8 a square foot. This adjustment lowered the resulting unregulated value of the 19,508 square foot property in this case by approximately $156,000.

The appraiser also adjusted the values of the comparable sales downward by another 5% to account for the risk that pilings might be needed. He made this [*11]adjustment even though HDR did not include pilings in their extraordinary costs. HDR instead included $172,000 in extraordinary costs to stabilize the soil by excavating 4 feet and replacing hydric soils with 4 feet of fill. The appraiser's adjustment for the risk that pilings would be needed reduced the unregulated value by $78,000.

Then, the unregulated value was further reduced by HDR's estimate of extraordinary costs of $723,000.

These adjustments to the unregulated value of the property totaled $957,000. This constitutes a 48% downward adjustment of the unregulated value of the property, based on the comparable sales, before extraordinary costs and before the 10% adjustment for motivation and the 5% adjustment for the risk of pilings. This is a significantly larger adjustment than the 32-34% that the Appellate Division applied in Berwick to account for the added difficulties in developing wetlands property.

Therefore, in this case the court finds that the Claimants are entitled to an increment of 75% of the adjusted unregulated value of the property after deducting the regulated value.

The increment is calculated as follows:

Adjusted Unregulated value less extraordinary costs$1,018,000

Regulated value$185,000

Difference$833,000

x .75

Increment$625,000

Plus Regulated value$185,000

Condemnation Value$810,000

Wherefore, the court finds that the value of the property for condemnation purposes on the date of taking was $810,000. Settle judgment and order on notice.

Dated: Brooklyn New York

May 7, 2012

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